The Ramsden Company is installing 10 new forklift trucks. Electric trucks cost $8000 each, whereas gas-powered trucks cost $5000 each. The operating costs for the electric trucks would be $5200 per truck per year compared with $6000 per gas truck for the eight-year expected life of each vehicle. Expected salvage value is zero and straight-line depreciation is to be used.
Ramsden will apply a 10% discount factor for analysis of the electric trucks and a 2% differential to the gas trucks owing to their higher operating risks. The applicable tax rate is 40%. Should electric or gas forklift trucks be purchased by Ramsden?